The Governing Council conducted its regular examination of recent monetary and economic developments and their implications for the risks to future price stability in the euro area. Subsequently, it decided to keep the interest rates on the Eurosystem 's monetary policy instruments unchanged. Thus the minimum bid rate in the main refinancing operations of the Eurosystem was left at 4.25%, and the interest rates on the marginal lending facility and the deposit facility were kept unchanged at 5.25% and 3.25% respectively.
Allow me to give you an overview of the main elements of our assessment of the latest information on monetary, financial market and other economic developments.
In the context of the first pillar of our monetary policy strategy, let me start with the latest monetary developments in the euro area. The three-month average of the annual growth rates of M3, covering the period from March to May 2000, stood at 6.3%, which was unchanged from the period from February to April 2000. At 6.3%, M3 growth was substantially above the reference value of 4 1/2%. This deviation of M3 growth from the reference value, combined with the strong growth of both M1 and credit to the private sector, indicates that liquidity conditions continued to be ample in the euro area through May. The increase in ECB interest rates on 8 June - in conjunction with the interest rate increases made since November 1999 - exerts a moderating influence on both money and credit growth.
Turning to the second pillar of our strategy, considering real economic developments, recent data indicate that the euro area economy has continued to grow at a robust pace. The first estimate of real GDP growth in the first quarter of this year was 0.7%. Although this was slightly below the average observed in the second half of last year, other indicators all point towards strong growth of the domestic economy. The rate of growth of industrial production, for example, not only increased in April, but also incorporated an upward revision for the first quarter. Industrial and consumer confidence both remain at, or close to, record high levels. At the same time, external developments are continuing to provide a positive stimulus to economic growth in the euro area. Reflecting favourable domestic and external conditions for growth, the outlook for euro area growth continues to be positive.
There have not been any major changes in bond and foreign exchange markets since the decision of the Governing Council on 8 June to raise the ECB interest rates. Current bond market yields continue to show market expectations of a period of sustained economic growth in the euro area. At the same time, the accumulated depreciation of the exchange rate of the euro remains a cause for concern and has to be taken into account in the assessment of the risks to price stability.
As regards consumer price developments, inflation in May 2000, as measured by the Harmonised Index of Consumer Prices -LRB- HICP -RRB-, remained at 1.9%. A lower year-on-year change in services prices offset relatively strong rises in other prices, in particular energy and unprocessed food prices. Over the coming months the rate of increase in consumer prices could continue to be affected by lagged effects of the increase in import prices. For the outlook for price stability in the medium term, it is essential that these short-term movements of inflation do not become protracted and translate into second round effects.
Overall, the outlook for price stability will be affected by several factors, which will need to be monitored carefully. First, strong monetary growth and ample liquidity conditions call for continuous monitoring. In addition, it will be important, in the current phase of strengthening economic growth, for wages to continue, on average, to grow at rates compatible with the objective of price stability. This, together with structural reform in the labour market, will be important to sustain the process of non-inflationary growth and to reduce unemployment in the euro area. Developments in import prices, which are influenced by the evolution of the exchange rate of the euro and the price of raw materials, may affect the outlook for prices in the period ahead. Finally, I should like to stress that a pro-cyclical loosening of the fiscal policy stance could also add to upward risks to price stability. In this respect, when looking at the euro area as a whole on a consolidated basis, current fiscal budget plans are not sufficiently ambitious in view of the favourable economic prospects.
Let me now give the floor to the Vice-President to say a few words about other issues discussed by the Governing Council.
First, I should like to address the euro banknote-related issue concerning the determination of the number of banknotes to be printed before the launch date of 1 January 2002. The latest forecast shows that there will be a need to put 14 billion euro banknotes into circulation, compared with last year 's estimate of 13 billion. The increase can be attributed to three main factors: a higher than expected figure for national banknotes in circulation, which forms the basis of estimates of the launch stocks ; a higher forecast for the use of low-denomination banknotes ; and a somewhat slower than previously expected development in the use of electronic money.
Second, the Governing Council also had an exchange of views on recent developments in the EU banking industry. The discussion was based on preparatory work by the Banking Supervision Committee. The Governing Council is well aware that the current process of consolidation is no longer confined to small and medium-sized banks - as it was in the past - but that now it also covers the larger banks at the national level and cross-border mergers and alliances are on the increase. The role of the euro as a factor encouraging this process of consolidation via further integration of money and capital markets is important. The consolidation process is welcome in general since it allows efficiency gains to be achieved in the banking sector. On the other hand, it affects the competitive environment in which banks operate, as well as their risk profile. Therefore, a careful monitoring on the part of the public authorities responsible for prudential supervision and financial stability is required. The Governing Council decided that a report on mergers and acquisitions involving the EU banking industry be prepared for publication in the autumn.
Question: Euroland has been on the verge of an upswing a couple of times in recent years, once in 1994 and 1995, and the second time in 1998. At both times external shocks derailed the recoveries. The first time it was the Mexican crisis and higher US rates ; the second time it was the emerging market crisis. We now all appear to be - sort of - in that situation again. The external shock this time would come from a slowdown in the US economy. What I would like to know is: will the Euroland recovery be derailed once again? Can Euroland growth survive a US slowdown or not?
Duisenberg: All indications are, indeed, that developments in the United States are slowing down somewhat, but I would certainly not qualify this as an external shock, because all indications are that the US economy is in for what we had all hoped for, namely a soft rather than a hard landing. So I would not call this an external shock and I think the euro area economy will be able to weather this storm or - as I would prefer to call it - this weak wind with ease.
Question: Mr. President, last Monday you met the Chancellor of Austria. Did he mention his referendum project about the so-called EU sanctions against his country and are you afraid of the possible consequences of this referendum on the exchange rate of the euro in autumn? And, on your side, do you think that the sanctions should be lifted?
Duisenberg: He did not mention the referendum issue. So I can also forget about your second question. With regard to your third question as to whether the sanctions should be lifted, I would like to emphasise that the European Central Bank is totally independent of political influence and that is not only a right, but also an obligation. We, too, should not try to exert any political influence. That is what we give in return for being independent ourselves. So the issues you have raised do not in any way have an influence on our co-operation with the Austrian national bank, which is an integral part of the European System of Central Banks, nor on that with its mother state, so to speak.
Question: Mr. Duisenberg, we are just ahead of the G8 Finance Ministers ' meeting in Fukuoka. The Bank of Japan has started to prepare the markets for an end to its near-zero interest rate policy. Do you regard the Japanese economy as being stable enough already to conclude such a step and, secondly, I would like to know - assuming that Japan lifts its policy - how would it affect the euro exchange rates?
Duisenberg: First of all, I would prefer to leave a judgement and an evaluation of the Japanese economy to the relevant authorities and I would like to limit myself to commenting on the European economy. And the second question is a very hypothetical one on a change in the monetary policy stance in Japan, and, well, let me say that I never give answers to hypothetical questions.
Question: Mr President, we have seen two variable rate tenders and we have gained first experience therewith. We have seen bidding up to 4.9%. Can you give us an idea of whether this bidding will rise further and whether the markets expect higher rates to accompany this bidding? Will you still try to stay close to your 4.25% level, or would you allow a step-wise upswing of the marginal lending facility?
Duisenberg: First of all, we are extremely satisfied with our experience of the first two tenders of the variable rate type, combined with the minimum bid, which we allowed and announced. This experience has been very satisfactory. The reason for changing to this new system, as you may know, was the practice of ever-lower allotment rates, which we had to accept, which made the whole system assume grotesque features. We believe - or rather can observe - that this phenomenon has disappeared, and in the first two tenders where market expectations were not moving in any particular direction, the effective rates and the marginal rates have stayed very close to the minimum bid rate. We expect this to remain the case, as long as market expectations do not change significantly, and we see no reason why they should.
Question: The French President, the other day, called for the appointment of what one might call an alternative" Mr. Euro '' to co-ordinate the economic policies of the Euro 11. You have already said that you do not think such a figure is necessary and I would like to ask you how strong your opposition to such an appointment is. And, second, I would like to ask you, where the exchange rate is concerned, whether the euro 's recovery on the foreign exchange markets appears to have faltered, or are you expecting to see the euro exchange rates recovering further in the coming months.
Duisenberg: On the first issue of the appointment of another" Mr. Euro '' or an extra" Mr. Euro '', I am not in opposition to it, nor am I in favour of it, and I take note of what has been said. On the exchange rates, I can only repeat that it is still our firm belief, given economic developments in both Europe, on the one hand, and the United States, on the other, that the euro has a strong potential to appreciate over time. And, looking at the developments of the past few weeks or even months, I would not go along with your statement that the recovery seems to have faltered.
Question: Mr. President, producer prices rose by 6.5% on an annualised basis in May. Is this a serious problem, or how immediate or how strong is the impact of producer prices in the euro area?
Duisenberg: Well, it is one of the indicators which we carefully watch in the context of the second pillar of our monetary policy strategy, but only one. And the precise relationship between increases in producer prices and their translation, ultimately, into consumer prices is a rather loose one. So, it being only one of a wide range, a broad range of indicators, and the relationship being a loose one, I can not give a precise answer to the question as to what precisely the impact will be in the future. It is one of the things we look at. And it is one of the reasons why we still think that the risks to price stability are on the upside, rather than on the downside.
Question: Mr. President, yesterday in Strasbourg, speaking at the European Parliament, you said that the promised forecasts would become available towards the end of this year. That is also going to be the time, probably, when the Governing Council establishes the reference value. Are you going to combine those decisions? Because at that time you will have to decide whether you will stick to your rate of less than 2% as meaning that we continue not to have inflation. What are your plans, please?
Duisenberg: We will review, as we have announced, our reference value for monetary growth in December, which we do once a year. One thing is almost as certain, namely that we will publish forecasts, probably towards the end of the year. Of course, these forecasts will then be one of the inputs, but only one, used in coming to a judgement on what the reference value will be. However, if I already knew the forecasts now, I could just as well publish them now. But I do not know them yet, so I can do no more than answer your question in these vague terms, and certainly not in quantitatively precise terms.
Question: It is reported that Mr. Welteke kind of implied that until September there would not be any change in policy, and you mentioned earlier that the ECB has cleared a horizon, or something like that. I am just wondering what we should do with this - I mean, my wife would like to go out of Germany and would like to take a vacation. So I wonder when would be a good time?
Duisenberg: I recommend August. Because that is when I take my vacation.
Question: President Duisenberg, one follow-up question with respect to the forecast. Have you already decided on whose behalf, or who will be responsible for the forecast? Will it be the ECB staff, will it be the Executive Board or will it be the Governing Council? And a different question: you have talked about banking supervision and I am sure you are aware of the discussions about the restructuring of the Deutsche Bundesbank. From your point of view, how important is it for central banks to be part of, or responsible for, banking supervision?
Duisenberg: The precise responsibility for the forecasts? We are preparing that. A decision has not been taken yet. The complication, as you very well know, is the following. Many institutions publish forecasts, but not many institutions which publish forecasts are, at the same time, responsible for policies. And we have to make it understood by the public and by everybody, also by you, that forecasts have great benefits, but that they also have limitations. They normally become outdated very quickly. They are based on certain hypotheses regarding so-called exogenous variables or exogenous factors. And they are only one of the inputs for the subsequent taking of monetary policy decisions. So we have to be very careful in explaining that. And as to who will take responsibility for them - we are still discussing this. We certainly do not want, at least I, do not want to make the Governing Council as such responsible for the forecast and, therefore, also accountable for the forecast. Because the Governing Council has, in making monetary policy decisions, to take many, many more factors into account than only a forecast, which will be produced as a combined effort by ECB staff and staff of the national central banks. So, in a way, to put it fairly honestly, we would like to keep our hands free and we have to explain why. I think that this explanation has to be very extensive and very well understood. As for banking supervision - as you know, the ECB as such has only a very limited mandate in the area of banking supervision. It is our view that a close connection between banking supervision and central banking is of the essence, both for supervisors and for the central banks. So that is a close connection. I am not saying that it always has to be done by central banks. But the very close connection, as I have said, is regarded as very important for both policies, for supervisory policy and for monetary policy.
Question: Have any of the new economic data that have come out since the last press conference, since you last raised interest rates, surprised you in any way? Or have things gone pretty much the way you would have expected?
Duisenberg: Matters have developed pretty much the way we expected them to. And all the data we have received have confirmed or strengthened our view that Europe is well under way in and into a period of robust economic growth, with inflation - although close to the edge - being kept under control. But all the data that have come out also confirm our assessment that the risks are on the upside, rather than on the downside.
Question: Would we journalists be right if we left the room today and said that the horizon is still clear for a little while? Would you be happy with that?
Duisenberg: Yes, if I look outside, it is beautiful.
Question: But seriously, though. Is that the message you would like to get out today?
Duisenberg: Yes, but there is no other message than that which I have just given. We believe that our decision of 8 June 2000 to raise interest rates was and still is appropriate in the light of the circumstances and the economic developments as we see them and as we evaluate them.
Question: President Duisenberg, introducing a new currency is a great challenge. Therefore, a half-sporting, half-monetary question - you know that the Dutch have lost against the Italians in particular. What should one do in order not to lose such important matches in Europe?
Duisenberg: On this question, because I was there when the penalty kicks were taken, I must confess that I am still angry. And it is better not to comment in an emotional state.
Question: Mr. Duisenberg, there is a lot of discussion about centralising banking supervision at the European level, that there is a need for that. What would you prefer: an independent authority for co-ordinating banking supervision at the European level or a strengthening of the Supervisory Committee that already exists? What is your vision on this?
Duisenberg: We prefer, as I said earlier, central banks to be closely involved in the process of banking supervision. Closely involved means closely connected to or associated with...
Question:... that is not very precise.
Duisenberg: Oh, that is very precise. There are various models available to achieve this. In a number of countries it is the national central bank which is responsible for banking supervision.
Question: I know, I am not talking about the national level. I am talking about the European level.
Duisenberg: We have no interest in doing that. We are perfectly happy with leaving actual supervision in national hands. And the ECB, or the Eurosystem, is not part of a movement to" europeanise '' or centralise banking supervision or other ways of supervision. What we are doing at the European level is to contribute to a close co-ordination of the supervisory regimes in the various Member States and to contribute to making the playing field level.